Correlation Between STMicroelectronics and BYD ELECTRONIC
Can any of the company-specific risk be diversified away by investing in both STMicroelectronics and BYD ELECTRONIC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining STMicroelectronics and BYD ELECTRONIC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STMicroelectronics NV and BYD ELECTRONIC, you can compare the effects of market volatilities on STMicroelectronics and BYD ELECTRONIC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in STMicroelectronics with a short position of BYD ELECTRONIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and BYD ELECTRONIC.
Diversification Opportunities for STMicroelectronics and BYD ELECTRONIC
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between STMicroelectronics and BYD is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and BYD ELECTRONIC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD ELECTRONIC and STMicroelectronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on STMicroelectronics NV are associated (or correlated) with BYD ELECTRONIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD ELECTRONIC has no effect on the direction of STMicroelectronics i.e., STMicroelectronics and BYD ELECTRONIC go up and down completely randomly.
Pair Corralation between STMicroelectronics and BYD ELECTRONIC
Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the BYD ELECTRONIC. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.95 times less risky than BYD ELECTRONIC. The stock trades about -0.1 of its potential returns per unit of risk. The BYD ELECTRONIC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 326.00 in BYD ELECTRONIC on September 2, 2024 and sell it today you would earn a total of 88.00 from holding BYD ELECTRONIC or generate 26.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
STMicroelectronics NV vs. BYD ELECTRONIC
Performance |
| Timeline |
| STMicroelectronics |
| BYD ELECTRONIC |
STMicroelectronics and BYD ELECTRONIC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STMicroelectronics and BYD ELECTRONIC
The main advantage of trading using opposite STMicroelectronics and BYD ELECTRONIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics position performs unexpectedly, BYD ELECTRONIC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BYD ELECTRONIC will offset losses from the drop in BYD ELECTRONIC's long position.The idea behind STMicroelectronics NV and BYD ELECTRONIC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| BYD ELECTRONIC vs. Sumitomo Chemical | BYD ELECTRONIC vs. AIR PRODCHEMICALS | BYD ELECTRONIC vs. United Natural Foods | BYD ELECTRONIC vs. Tyson Foods |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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